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What’s up with the art markets?

NEW YORK – The world trade in fine art has joined stocks and crude oil in a rollercoaster ride that shows no signs of ending any time soon. Just when it looks like the upward journey will never reach the top, riders plunge into a chasm of questionable practices and speculation.

“The auction market is poised for a correction if last week’s sale results indicate a shift in direction,” said Mary P. Manion, acting director of Landmarks Gallery and Restoration Studio in Milwaukee. Manion, who has worked in the trade for more than 30 years, writes a monthly column on world art markets for Antique Trader.

“The annual fall sales at Sotheby’s and Christie’s brought disappointing results to a number of big items including a van Gogh and a Braque, which failed to meet their reserves and were left unsold,” Manion said. “Both paintings were featured highlights in Sotheby’s Impressionist and Modern Art Evening Sale on Nov. 7. Current practice at the big houses can include guarantees to the sellers if the sale fails to reach their designated reserve. The auction houses do not disclose what the guarantee is, making it difficult to determine how much Sotheby’s financed for its two unexpected acquisitions.”

Van Gogh’s The Fields, a scene of undulating wheat plains, was painted about two weeks before his death and hung above the cast-iron bed at the dingy Auberge Ravoux inn in the Paris suburb of Auvers-sur-Oise, where he died on July 29, 1890. It was expected to fetch between $28 million and $35 million.

Van Gogh’s The Fields

Sotheby’s shares plummeted after its announcement that it lost $14.6 million on the purchase of paintings – by Pablo Picasso, Auguste Renoir and Paul Gauguin, as well as van Gogh – that went unsold.

The firm’s chief executive Bill Ruprecht blamed the Nov. 7 auction’s disappointing outcome on the unsold van Gogh, which “colored the mood of that evening and rattled any number of participants on that night as to what the market was like or felt like.”

However, Christie’s Nov. 13 sale of post-war and contemporary art totaled $325 million, the second highest ever for a sale in the field. Sixteen new world auction records were set for artists such as Jeff Koons, Lucian Freud, Ed Ruscha, Richard Prince and Gerhard Richter.

Other highlights included Mark Rothko’s Untitled (Red Blue Orange), which realized $34 million. Andy Warhol’s Liz, part of the series of portraits Warhol executed in the 1960s, realized $23.5 million. Elvis 2 Times, one of the images of “the King” that Warhol executed in his Firehouse studio in 1963, brought $15.7 million.

Mark Rothko’s Untitled (Red Blue Orange), $34 million

“The current market price for any work of art relies on sales and auction records to establish value,” said Manion. “Retail vendors and galleries follow these price ranges. In theory, a gallery could price an artwork higher than market value, but its accepted value is the current sale value.. When Christie’s puts an estimate of $25 million-$35 million on a Warhol, it’s a bit like speculating with confidence that the market will support its wager.”

In a recent Wall Street Journal story headlined “Abstract Depressionism,” the practice of providing guarantees to sellers and financing purchases came under scrutiny. The story asked the question, “When is a van Gogh painting like a junk bond?” Answer: When it is underwritten by an auction house and then fails to fetch substantial bids.

“In recent auction seasons, the auction houses have put fantastic reserves on many lots,” said Manion. “With extraordinary vigor, results have met and exceeded estimates. Some auction houses are offering to finance purchases, perhaps as a way to secure those numbers to a buyer who can’t quite meet the reserve price but is very much interested in being the highest bidder. Sound practice or risky business?

“The Russian art market may be quietly influencing the general market through a special circumstance it brings to the block,” Manion added. “Unlike other auction arenas, art by Russian painters (pre-1990) is being bought up in record sales by a newly wealthy Russian class. The unique objectives of Russian buyers have turned their nation’s art into a premium market.”